Bloomberg News - Chinese auto dealership returns will decline as automakers add more of them, intensifying competition, Sanford C. Bernstein Ltd. said in a report.
Foreign automakers are expanding distribution in China's central and western regions and into less-developed cities dominated by domestic brands, while local marques are seeking to attract higher-income buyers with more sophisticated products, according to the Bernstein note distributed today.
"A crunch in returns is inevitable," analysts led by Max Warburton wrote in the report.
Increasing competition in the world's largest network of dealerships will probably fall hardest on smaller sellers, according to the report. "For some of the weaker brands whose dealers sell relatively few cars even now, this could prove to be a disastrous development," Warburton wrote.
General Motors Co. (GM) and Toyota Motor Corp. (7203) have focused on the eastern, southern and northern parts of China, where incomes are higher and are now expanding in the poorest regions, according to the report.
Zhejiang Geely Holding Group Co. and BYD Co. (1211) have the most number of dealerships in the country, though they are concentrated in poorer cities, sell fewer cars and have lower profitability, according to Bernstein.